The U.S. Small Business Administration has frozen more than $5.5 million in federal funding to Minnesota due to widespread fraud and a breakdown in oversight under Democrat Gov. Tim Walz.
In a letter sent to Walz last week, SBA Administrator Kelly Loeffler said the agency has halted the disbursement of federal funds to SBA partner organizations operating in the state.
The letter, dated Dec. 23, cited mounting evidence of fraud and failures by state leadership to protect taxpayer dollars.
"This action is the result of a fundamental breakdown in the public trust," Loeffler wrote. "Under your leadership, Minnesota failed to safeguard taxpayer dollars, and SBA will not continue to place federal resources at risk in a state where oversight measures are ignored and accountability is abandoned."
The funding freeze came even before the release of a viral investigative video later in the week exposing alleged fraud tied to Somali-run day care centers across Minnesota.
The footage, published by independent journalist Nick Shirley, showed facilities that received massive taxpayer funding despite little or no legitimate business activity.
The SBA's action follows the agency's discovery of additional loans allegedly linked to individuals connected to Minnesota's Feeding Our Future pandemic fraud scheme. Federal prosecutors have previously estimated that fraud in the state could total as much as $9 billion.
Loeffler said the freeze is necessary to stop further losses while investigators determine the full scope of the alleged fraud.
"What happened in Minnesota is the consequence of socialist policies deliberately designed to pump out welfare funding without oversight or accountability," Loeffler said in the letter to Walz.
Speaking with conservative podcaster Benny Johnson after Shirley's reporting, Loeffler said the SBA is "cutting off and clawing back all SBA grants to Minnesota, effective immediately."
"The scope of this international scam is still unknown," she told Johnson. "Pending further review, SBA is freezing all grant funding to the state to stop the rampant waste of taxpayer dollars and uncover the full depth of fraud."
Shirley's video included confrontations with workers at day care facilities around the Twin Cities. In one clip, his team highlights an "early learning center" whose sign misspelled the word as "learing," drawing national attention.
Rep. Tom Emmer, R-Minn., responded on social media, blasting the fraud.
Emmer wrote: "$4 million of hard-earned tax dollars going to an education center that can't even spell ‘learning' correctly. Care to explain this one, @tim_walz?"
In another segment, a nearby resident claimed he has lived next to a Somali-run day care for years without seeing a single child enter the building.
Loeffler told Johnson that SBA investigators uncovered nearly $500 million in suspected fraud "within days" and said the Trump administration will pursue accountability for state officials who enabled what she described as an "industrial-scale crime ring" targeting American taxpayers.
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